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Effect Of Leadership Styles On Firm Performance

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Discuss about the Effect of Leadership Styles on Firm Performance.



The entire process of leading or guiding a group of people in any organization is referred to as leadership in a workplace. Leadership is an essential aspect of every organization as it provides base to the organizational culture, learning of employees and effective functioning of everyday tasks at workplace. A leader is very different from a manager (Bryman, 2013). A manager is a person who manages a group of people by the virtue of his or her position in the workplace. While a leader may or may not be a manager as per the designation in the organization. Managers have subordinates who report to the manager while leader has followers. Effective leaders can bring about a positive change in the organization by motivating employees to work harder and assist them in achieving their goals (Day, 2014).

The reason for selecting this topic for the research is because leadership is a vast subject and extremely crucial to every organization. The performance of the employees largely depends upon on the qualifications, nature, behavior, personality and style of the leader they follow. It has also been noticed that various leaders have different styles of working and it largely impacts the employee’s work satisfaction and performance. Many organizations actively invest in leadership development trainings for the same purpose (Hargreaves, 2014).

The report predominantly throws light on the importance of leadership in an organization and how leaders impact the growth and development of their followers. Every leader has certain traits and the traits of a good leader are emphasized upon in this report. Leadership styles of different leaders greatly impact the performance and attitude of the followers. Various prominent leadership styles are also defined below. This report draws a clear picture about the difference between theory and reality with practical examples. At last, the report draws conclusion upon various learnings of the author in the process of writing this report.

Importance of leadership in an organization

Leadership is a crucial aspect of every organization. Leaders provide base for accomplishment of goals and setting of the organizational culture. Leaders have a set of followers. Leaders guide, inspire, motivate, train and provide feedback to these followers. This in turn impacts the performance of these employees and help in their overall growth, learning and development.

Leaders provide base for the culture of the organization. A leader who is extremely authoritative will create and promote a strict culture of the organization and help in achieving goals in an efficient manner (Bolman, 2017). A democratic leader will motivate the employee to be innovative and take their decisions which would help bring new ideas to the table and foster creativity of employees.


Efficient leadership helps in quick decision making and help in managing time of the employees. Leaders also have the responsibility of providing genuine and honest 360 degree feedback to employees. This helps in the employee’s growth and learning as an individual. It also gives them a clear idea about the quality of their performance and how they can improve upon the same.

Every leader follows a different style of leadership. This style is unique to the leader and largely depends upon the nature of followers and the criticality of work demanded in the organization. These leadership styles are extremely crucial and a thorough understanding of the same help employees communicate and understand their leaders better.

Primal leadership focusses on the aspect of emotional intelligence and its importance in an organization. This leadership throws light on the emotional style of the leader. It emphasizes upon the importance of the leader being emotionally intelligent (Harvard business review, 2001). High levels of emotional intelligence in a leader creates a culture of trust, information sharing, learning and healthy risk taking. While lower levels of emotional intelligence creates fear, anxiety and adversely impacts innovation among employees (Goleman, 2013).

Democratic or participative leadership involves participating of employees in decision making as a team and accomplishment of goals together. A democratic leader motivates his followers to participate in decision making and instills a sense of ownership in them (Puni, 2014). This fosters creativity and every employee feels responsible to accomplish goals. Members of the group feel more engaged in the processes of the organization and this in turn increases employee loyalty.

Democratic leadership style is based on trust and transparent knowledge sharing within a group. The skills and expertise of the group members also play an important role as they are bestowed upon with crucial responsibilities of the organization (Hendriks, 2014). However, democratic leadership may lead to miscommunication among members and hence may cause a delay in decision making. And the leader must be careful about the same.

Larry page of Google, Indira Nooyi of PepsiCo and Jeff Bezos of Amazon are examples of democratic leaders who fostered and promoted innovation and participation in their respective organizations and continued to offer innovative, unique and original solutions to their customers.

Coaching leadership style is especially beneficial in a situations where a drastic change or improvement is required in the organization. This leadership styles involves training and coaching given to members by the leaders (Boykins, 2013). The guidance offered by the leader leads to an improvement in the performance of the employees and their better learning and development opportunities.

Coaching leadership style requires leaders to be responsible, extremely competent, empathetic and understanding of the employees. It is important to understand that this leadership style is not mentoring, training, consulting or any technical guidance. Rather it is a much longer and ongoing process. The leader aims to coach his followers so that they can improve upon their performance and become leaders of the future (Bhatti, 2012).

Charismatic leaders are very similar to transformational leaders. These leaders inspire and motivate their followers by the virtue of their behavior, actions, performance, communication abilities, personality traits or commitment to the organization (Nielsen, 2010). This leadership style largely relies upon the persuasiveness and charm of the leader to influence his followers to perform better.

Charismatic leaders are engaging and have an unwavering commitment towards the organizational goals and they leave no stone unturned to achieve the same. They are skilled communicators and efficient orators. They eventually help in achieving employee engagement, commitment and achievement of goals. Employees look up to them and hence it is imperative that they have a strong personality leading to inspiration among employees (Levay, 2014).

Martin Luther king, M. K. Gandhi and Winston Churchill are prominent examples of charismatic leaders who influenced millions of people by their personality and brought about massive changes in their respective societies.

Authoritative leadership is characterized by centralized decision making and lack of participation among members of a group. An authoritative leader sets policies, procedures and rules for the group and commands to follow the same (Mitchell, 2013). This leadership style is especially beneficial in critical tasks or crucial organizations. This is also beneficial when the employees are not competent enough and seek their leader to guide them. This style leads to quickest decision making and efficient task accomplishment.


However, this leadership styles neglects individual creativity and decision making ability of employees (Schoel, 2011). This may lead to frustration among employees and adversely impact their learning and personal growth.

The defense or central banks of various countries are best example of authoritarian leadership. This is extremely crucial in such organizations owing to the criticality of the task.

Coercive leadership style is often adopted at the time of a crisis or when the organization is going through major transformation (Northouse, 2015). This may include opening of a new office in a new location, dealing with non-performing employees or any other major political or economic change in the organization.

Coercive leaders can be best described by the statement ‘Do as I say”. This implies that the leader leaves all the decision making to himself and the followers are simply supposed to obey the same. This leadership style involves quickest decision making and more effective accomplishment of organizational goals (Pierro, 2013).

It is important to note that coercive leadership style is adopted by leaders in specific situations that demand quick actions and competent completion of tasks. This style otherwise has the most negative impact upon the workers and hence should only be adopted for a short duration. This style is extremely inflexible, removes all the responsibilities from the employees and provides them with little reward. This is turn, is expected to create frustration among employees and adversely impact their performance.

Leadership traits

It has often been argued that leadership qualities are difficult to learn. Most leaders are born. This is due to the fact that leaders possess certain traits that make them good leaders and it is extremely crucial to build these traits for better understanding and communication between the leader and followers (Germain, 2012). Few traits of a good leader are listed below

  1. Honesty
  2. Transparency
  3. Believe in team work
  4. Efficient delegation
  5. Emotional stability
  6. Enthusiasm
  7. Tough mindedness
  8. Self-assurance
  9. Dominance
  10. Social boldness
  11. Creativity
  12. Positive Attitude
  13. Unwavering commitment
  14. Understanding of human behavior
  15. Unbiased behavior

It has been noticed that despite various literature and training provided to leaders, there is a strong difference that we see between the literature and the reality of organizations. This difference is due to the traits of the leader, the nature of the followers, the criticality of the business and various other situational elements.

This is often observed in many organizations. Over a period of time, the leader tends to grow bias towards and against certain members of the team (Nahavandi, 2016). This leads to frustration among employees and unfavorable selection and promotion of team members. This is why it is important that the leaders of the organization are often given a different team of employees to work with. The leaders should also be strong minded and emotional more stable to not allow personal feelings towards employees come in the way of their professional decisions.

Like every organization, miscommunication is the biggest problem that arises in a team. Especially when the leadership style is democratic or primal, there is a lot of decision making which is left upon the team members. This may cause communication issues and lead to a delay in accomplishing targets (Antonakis, 2017).

Often leaders are seen to misuse their authority and their position in an organization. Owing to their position or designation, they may end up giving more tasks to the team and leave little for themselves to do. They can also favor employees they are personally close to and provide feedback which is not genuine.

During the research conducted for the report, the following learning outcomes were obtained:


Leaders maintain a positive attitude

Leaders of the organization maintain a positive attitude. Their emotional intelligence and stability directly impacts the organization and its employees. Business may face various ups and downs but a good leader will continue to put up a great show and remain positive and calm throughout. No one likes to admit defeat, but sometimes it is inevitable and a good leader understands that.

Good leaders know their team well. They understand how the tasks should be best divided among the team to foster employee growth and efficient accomplishment of organizational goals. The leader must be aware of personal career goals of employees and help them accomplish the same. This helps in effective communication and establishing trust within the organization.

Leaders understand that they don’t exist to simply command followers but they exist to guide them, teach them and help them grow. They have a passion for growing members of the team. And they strive to create a positive environment where employees feel motivated and confident to work.

Leader should not and cannot stand alone and it is hence their duty to build leaders. They understand that the organization needs various influential personalities and hence they work hard at developing their members and inspire other leaders to develop and improve and become leaders for others in the organization.



Antonakis, J. (2017). The nature of leadership. Sage publications.

Bhatti, N., Maitlo, G. M., Shaikh, N., Hashmi, M. A., & Shaikh, F. M. (2012). The impact of autocratic and democratic leadership style on job satisfaction. International Business Research, 5(2), 192.

Bolman, L. G., & Deal, T. E. (2017). Reframing organizations: Artistry, choice, and leadership. John Wiley & Sons.

Boykins, C., Campbell, S., Moore, M., & Nayyar, S. (2013). An empirical study of leadership styles. Journal of Economic Development, Management, IT, Finance, and Marketing, 5(2), 1.

Bryman, A. (Ed.). (2013). Leadership and organizations. Routledge.

Business news daily, 2017, ‘4 ways to define leadership’,, retrieved on 29 October, 2017

Day, D. V. (Ed.). (2014). The Oxford handbook of leadership and organizations. Oxford Library of Psychology.

Germain, M. L. (2012). Traits and skills theories as the nexus between leadership and expertise: Reality or fallacy? Performance Improvement, 51(5), 32-39.

Goleman, D., Boyatzis, R. E., & McKee, A. (2013). Primal leadership: Unleashing the power of emotional intelligence. Harvard Business Press.

Hargreaves, A., Boyle, A., & Harris, A. (2014). Uplifting leadership: How organizations, teams, and communities raise performance. John Wiley & Sons.

Harvard Business Review, 2001, ‘Primal leadership: the hidden driver of great performance’,, retrieved on 29 October, 2017.

Hendriks, F., & Karsten, N. (2014). Theory of democratic leadership. Pp.’s Hart & R. Rhodes (Eds.), Oxford handbook of political leadership, 41-56.

Levay, C. (2014). Charismatic leadership in resistance to change. The Leadership Quarterly, 21(1), 127-143.

Mitchell, G. (2013). Selecting the best theory to implement planned change. Nursing Management-UK, 20(1).

Nielsen, R., Marrone, J. A., & Slay, H. S. (2010). A new look at humility: Exploring the humility concept and its role in socialized charismatic leadership. Journal of Leadership & Organizational Studies, 17(1), 33-43.

Northouse, P. G. (2015). Leadership: Theory and practice. Sage publications.

Pierro, A., Raven, B. H., Amato, C., & Bélanger, J. J. (2013). Bases of social power, leadership styles, and organizational commitment. International Journal of Psychology, 48(6), 1122-1134.

Puni, A., Ofei, S. B., & Okoe, A. (2014). The effect of leadership styles on firm performance in Ghana. International Journal of Marketing Studies, 6(1), 177.

Schoel, C., Bluemke, M., Mueller, P., & Stahlberg, D. (2011). When autocratic leaders become an option—Uncertainty and self-esteem predict implicit leadership preferences. Journal of personality and social psychology, 101(3), 521.


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